NMI cuts fees of ‘cover-over’ law firm to $25K

The Attorney General’s Office has managed to reduce the legal fees payable to the law firm that represented the Commonwealth in the “cover-over” lawsuit from 33 percent of the potential $80 million recovery to $25,000.

Attorney General Matthew Gregory announced yesterday a settlement in the case filed by the CNMI government against Schwabe, Williamson & Wyatt.

The law firm was hired by the Babauta administration to represent the Commonwealth in a lawsuit against the U.S. Department of Treasury over the federal government’s failure to transfer—or “cover over”—to the Commonwealth federal taxes collected from Northern Marianas residents.

In January, the CNMI had filed a complaint in Superior Court alleging that the 2003 contract was invalid as it failed to follow applicable procurement laws. The contract provided that SW&W would be paid up to one third of the amount of recovery by the CNMI after payment of all costs.

Legal fees due to SW&W could have reached over $23 million.

The AGO noted that SW&W’s compensation should reflect the actual value of any benefit received by the Commonwealth during the approximate three-year period of representation.

“This position was supported by case law which states that compensation for legal services should be on the value received by the client, not merely billable hours and costs,” according to the AGO.

Gregory said that SW&W proposed a settlement amount of over $300,000 in attorney fees and costs. But the AGO maintained that the only tangible benefit received by the Commonwealth from the law firm’s representation was some legal research on the estate tax cover over claim. The research was valued at $25,000.

SW&W eventually accepted the Commonwealth’s settlement proposal of $25,000.

Shortly after assuming office, the Fitial administration had terminated its predecessor’s contract with the law firm.

Gregory had said the AGO would pursue recovery of the tax proceeds which had been estimated to reach between $60 million and $80 million.

“We’re looking for the best method for recovery—one that will maximize the recovery for the Commonwealth without spending an enormous amount on legal fees, and one that will best bring the Department of Treasury on the negotiating table,” Gregory had said in January 2006.

The CNMI Department of Finance, through counsel William J. Ohle of the SW&W law firm, sued the U.S Treasury and Secretary John Snow in December 2005 for breach of the Covenant and breach of fiduciary duty.

Specifically, Finance asked the U.S. District Court for the NMI to order the U.S. government to pay to the local treasury all of the proceeds and interest of all U.S. estate and gift taxes levied on the NMI inhabitants since the Covenant became effective on Jan. 9, 1978.

Finance requested the court to direct the Department of Treasury to make an accounting of all U.S. estate and gift taxes received by the defendant and to provide to the Commonwealth complete information to enable the identification of all such proceeds.

The Commonwealth also demanded payment for monetary benefit received by the defendant from the wrongful withholding of U.S. estate and gift taxes that were not timely transferred to the local treasury.